Question

CIVES 12.2, 12.3) Taylor Electronics Company is engaging in manufacturing ents. The company purchases its raw materials from various supp orders t.25 (OBJECTIVES 12-2, 12-3) Taylor of onic comp a description of the purchasing system of Taylor Electronics ed volved following is uction supervisors complete a requisition form when they are in need of raw This is triggered by checking the current level of inventory on the inventory The bollowing onents T risk of ificant system w materials. Orders cannot be made if it is outside of the range set in the inventory of raw udit. quan- em The requisition form is then authorized by the production manager. he authorized requisition form is submitted to the purchase ordering department which the staff will raise sequentially numbered purchase orders, in multiple cop e approved supplier list. The copies are sent to: b) the accounts payable department c) the warehouse department. ftw s. Th e been It is the department's policy to update the supplier list with reference to the sup pliers' quality and price on an annual basis. The purchasing director authorizes the curity orders prior to submitting to the selected supplier 3, Upon receipt of goods, the warehouse department verifies the quantity to the suppli- t por- dium- gh the ts are ers despatch note and the purchase order sent to the warehouse department earlier The staffin warehouse department also checks that the quality of the goods received is satisfactory. A sequentially numbered goods received note is then generated which will be sent to the accounts payable department. 4. The accounts payable department matches the goods received note (from ware- house department) with the purchase order (from purchase ordering department) and invoice (from suppliers) to ensure the agreed prices and discounts have been honoured. After the checking process, the staff initials on the invoice to indicate the chart. ports ed by matching process is completed 5. Another accounts payable clerk enters the "matched" invoices onto the purchase system in batches. In this process, the clerk uses a batch control sheet which shows the number of invoices and the total value to be entered. Such information will then be checked against the system batch report. After inputting the information into th purchase system, the invoice will be marked as "LOGGED. The assistant accounts payable manager inspects the file of invoices on a weekly basis to ensure that all audit, orting ions. invoices have been recorded. 6. The logged invoices are then reviewed and authorized for payment by the finance sories s over l will rector. Payments are made by the accounts department via bank transfer on a weekly identify the important controls and related purchase transaction-related audit objectives. List the procedures that a CPA will use in an audit of purchasing transactions in order is. After payment, the invoice will be marked as "PAID to avoid duplicate payments ucted trols. oassess the operating effectiveness of internal controls. torar use har code scanning technologies that

Answer 1

a.

Controls	Transaction related Audit Objectives
Segregation of the purchasing, receiving and cash disbursements functions	Recorded cash payments are for goods actually received by the company
Use of Pre-numbered voucher packages, properly accounted for	Existing Purchase transactions are recorded
Use of pre-numbered checks, properly accounted for	Existing transactions are recorded
Use of pre-numbered receiving receiving reports, properly accounted for	Existing purchase transactions are recorded
Internal verification of document package before check preparation	Recorded purchases are for the amount of goods received and are correctly billed and recorded
Review of supporting documents and signing of checks by an independent,authorized person	Recorded cash payments are for goods actually received by the company.

b.Procedures that a CPA will use in an audit of purchasing transactions in order to asses the operation effectiveness of internal control

1. Getting Approval: Checklists should include a list of people who are authorized to make purchases on behalf of the company. Authority can be given to a person to buy a certain group of products or to make purchases within a defined budget. A system of checks and balances is employed when two or more signatures are required to approve the purchase order. Investigate purchases that were made without the purchase order paperwork or without the proper signatures.
2. Selecting a Supplier:A good supplier contributes to a smooth purchasing experience. A process is needed to ensure you are selecting the best supplier for your product or service need. Checklist steps to evaluate a new supplier include asking for and checking references, reviewing quality, comparing price and assessing delivery capability and schedule. Establish guidelines to make sure only approved vendors are being used, and research any instances where the checklist is not followed or materials were secured from unapproved sources.
3. Receiving Goods: Procurement checklists include a process to check merchandise when it is received. Assigning a point person in charge of receiving deliveries ensures a consistent process is followed each time to reduce errors. To receive a shipment, sign and date the receiving record and cross-check the original purchase order with the bill of sale or packing list to be sure the items and quantities are correct. A review of the process might reveal quantity errors on orders when employees unfamiliar with the receiving process are accepting shipments. Corrective action can be taken to either educate additional employees or to reinforce the policy of having a single signer in the receiving department.
4. Quality Control: A periodic review of current suppliers should be implemented to determine if they are consistently meeting quality requirements, achieving delivery deadlines and offering competitive prices. A checklist helps you compare all suppliers against the same set of criteria. Review customer returns to determine if they can be traced back to a particular shipment. Damage in receiving should be quickly identified and properly documented. Patterns of poor quality discovered during an audit should trigger a review of the supplier’s suitability to continue as an approved vendor.